1. Competitiveness, Strategy, and Productivity
Chapter 2
Competitiveness, Strategy, and Productivity
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. Chapter 2: Learning Objectives
You should be able to:
LO 2.1 List several ways that business organizations compete
LO 2.2 Name several reasons that business organizations fail
LO 2.3 Define the terms mission and strategy and explain why they are important
LO 2.4 Discuss and compare organization strategy and operations strategy, and explain why it is important to link the two
LO 2.5 Describe and give examples of time-based strategies
LO 2.6 Define the term productivity and explain why it is important to organizations and to countries
LO 2.7 Describe several factors that affect productivity

3. the bar is getting higher
A Cold Hard Fact
Better quality, higher productivity, lower costs, and the ability to respond quickly to customer needs are more important than ever, and…
the bar is getting higher
LO 2.1

4. Chapter Focus
This chapter focuses on three separate, but related ideas that are vitally important to business organizations
Competitiveness
Strategy
Productivity
LO 2.1

5. Competitiveness Competitiveness:
How effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services
Organizations compete through some combination of their marketing and operations functions
What do customers want?
How can these customer needs best be satisfied?
LO 2.1

6. Marketing’s Influence
Identifying consumer wants and/or needs
Pricing and quality
Advertising and promotion
LO 2.1

7. Businesses Compete Using Operations
Product and service design
Cost
Location
Quality
Quick response
Flexibility
Inventory management
Supply chain management
Service
Managers and workers
LO 2.1

8. Why Some Organizations Fail
Neglecting operations strategy
Failing to take advantage of strengths and opportunities and/or failing to recognize competitive threats
Too much emphasis on short-term financial performance at the expense of R&D
Too much emphasis in product and service design and not enough on process design and improvement
Neglecting investments in capital and human resources
Failing to establish good internal communications and cooperation
Failing to consider customer wants and needs
LO 2.2

9. Hierarchical Planning
Mission
Goals
Organizational Strategies
Tactics
Functional Strategies
LO 2.3

10. Mission, Goals, and Strategy
The reason for an organization’s existence
It answers the question “What business are we in?”
Goals
Provide detail and the scope of the mission
Goals can be viewed as organizational destinations
Strategy
A plan for achieving organizational goals
Serves as a roadmap for reaching the organizational destinations
The organizational strategy guides the organization by providing direction for, and alignment of, the goals and strategies of the functional units
The organizational strategy is a major success/failure factor
LO 2.3

11. Mission Mission Mission statement
The reason for an organization’s existence
Mission statement
States the purpose of the organization
The mission statement should answer the question of “What business are we in?”
LO 2.3

12. Fed Ex Mission Statement
FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx Corporation will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards.
LO 2.3

13. Goals
The mission statement serves as the basis for organizational goals
Goals
Provide detail and the scope of the mission
Goals can be viewed as organizational destinations
Goals serve as the basis for organizational strategies
LO 2.3

14. Strategies Strategy A plan for achieving organizational goals
Serves as a roadmap for reaching the organizational destinations
Organizations have
Organizational strategies
Overall strategies that relate to the entire organization
Support the achievement of organizational goals and mission
Functional level strategies
Strategies that relate to each of the functional areas and that support achievement of the organizational strategy
LO 2.3

15. Tactics and Operations
The methods and actions taken to accomplish strategies
The “how to” part of the process
Operations
The actual “doing” part of the process
LO 2.3

16. Core Competencies Core Competencies
The special attributes or abilities that give an
organization a competitive edge
To be effective core competencies and strategies need to be aligned
LO 2.3

17. Sample Operations Strategies
Organizational Strategy
Operations Strategy
Examples of Companies or Services
Low Price
Low Cost
U.S. first-class postage
Wal-Mart
Responsiveness
Short processing times
On-time delivery
McDonald’s restaurants
FedEx
Differentiation:
High Quality
High performance design and/or high quality processing
Consistent Quality
Sony TV
Coca-Cola
Newness
Innovation
3M, Apple
Variety
Flexibility
Volume
Burger King (Have it your way”)
McDonald’s (“Buses Welcome”)
Service
Superior customer service
Disneyland
IBM
Location
Convenience
Supermarkets; Mall Stores
LO 2.4

18. Strategy Formulation
Effective strategy formulation requires taking into account:
Core competencies
Environmental scanning
SWOT
Successful strategy formulation also requires taking into account:
Order qualifiers
Order winners
LO 2.4

19. Strategy Formulation Order qualifiers Order winners
Characteristics that customers perceive as minimum standards of acceptability for a product or service to be considered as a potential for purchase
Order winners
Characteristics of an organization’s goods or services that cause it to be perceived as better than the competition
LO 2.4

20. Environmental Scanning
Environmental Scanning is necessary to identify
Internal Factors
Strengths and Weaknesses
External Factors
Opportunities and Threats
LO 2.4

21. Key External Factors Economic conditions Political conditions
Legal environment
Technology
Competition
Markets
LO 2.4

22. Key Internal Factors Human Resources Facilities and equipment
Financial resources
Customers
Products and services
Technology
Suppliers
Other
LO 2.4

23. Operations Strategy Operations strategy
The approach, consistent with organization strategy, that is used to guide the operations function.
LO 2.4

24. Strategic OM Decision Areas
What the Decisions Affect
Product and service design
Costs, quality, liability, and environmental issues
Capacity
Cost, structure, flexibility
Process selection and layout
Costs, flexibility, skill level needed, capacity
Work design
Quality of work life, employee safety, productivity
Location
Costs, visibility
Quality
Ability to meet or exceed customer expectations
Inventory
Costs, shortages
Maintenance
Costs, equipment reliability, productivity
Scheduling
Flexibility, efficiency
Supply chains
Costs, quality, agility, shortages, vendor relations
Projects
Costs, new products, services, or operating systems
LO 2.4

25. Quality-Based Strategies
Quality-based strategy
Strategy that focuses on quality in all phases of an organization
Pursuit of such a strategy is rooted in a number of factors:
Trying to overcome a poor quality reputation
Desire to maintain a quality image
A desire to catch up with the competition
A part of a cost reduction strategy

26. Time-Based Strategies
Strategies that focus on the reduction of time needed to accomplish tasks
It is believed that by reducing time, costs are lower, quality is higher, productivity is higher, time-to-market is faster, and customer service is improved
LO 2.5

27. Time-Based Strategies
Areas where organizations have achieved time reductions:
Planning time
Product/service design time
Processing time
Changeover time
Delivery time
Response time for complaints
LO 2.5

28. Agile Operations Agile operations
A strategic approach for competitive advantage that emphasizes the use of flexibility to adapt and prosper in an environment of change
Involves the blending of several core competencies:
Cost
Quality
Reliability
Flexibility

29. The Balanced Scorecard Approach
A top-down management system that organizations can use to clarify their vision and strategy and transform them into action
Develop objectives
Develop metrics and targets for each objective
Develop initiatives to achieve objectives
Identify links among the various perspectives
Finance
Customer
Internal business processes
Learning and growth
Monitor results

30. The Balanced Scorecard

31. LO2.6 Productivity Productivity Productivity measures are useful for
A measure of the effective use of resources, usually expressed as the ratio of output to input
Productivity measures are useful for
Tracking an operating unit’s performance over time
Judging the performance of an entire industry or country
LO 2.6

32. Why Productivity Matters
High productivity is linked to higher standards of living
As an economy replaces manufacturing jobs with lower productivity service jobs, it is more difficult to maintain high standards of living
Higher productivity relative to the competition leads to competitive advantage in the marketplace
Pricing and profit effects
For an industry, high relative productivity makes it less likely it will be supplanted by foreign industry
LO 2.6

33. Productivity Measures
LO 2.6

34. Productivity Calculation Example
Units produced: 5,000 Standard price: $30/unit Labor input: 500 hours Cost of labor: $25/hour Cost of materials: $5,000 Cost of overhead: 2x labor cost
What is the
multifactor productivity?
LO 2.6

35. Solution
What is the implication of an unitless measure of productivity?
LO 2.6

36. Productivity Growth
Example: Labor productivity on the ABC assembly line was 25 units per hour in In 2015, labor productivity was 23 units per hour. What was the productivity growth from 2014 to 2015?
LO 2.6

37. Service Sector Productivity
Service sector productivity is difficult to measure and manage because
It involves intellectual activities
It has a high degree of variability
A useful measure related to productivity is process yield
Where products are involved
ratio of output of good product to the quantity of raw material input.
Where services are involved, process yield measurement is often dependent on the particular process:
ratio of cars rented to cars available for a given day
ratio of student acceptances to the total number of students approved for admission.
LO 2.6

38. Factors Affecting Productivity
Methods
Capital
Quality
Technology
Management
LO 2.7

39. Improving Productivity
Develop productivity measures for all operations
Determine critical (bottleneck) operations
Develop methods for productivity improvements
Establish reasonable goals
Make it clear that management supports and encourages productivity improvement
Measure and publicize improvements
Don’t confuse productivity with efficiency
LO 2.7